Nigeria’s Perennial Fuel Scarcity: A Clash of Socialism and Capitalism -By Elvis Ogah

Socialism can be likened to the MMM Ponzi scheme that pervaded Nigeria last year. Socialism like MMM, promises prosperity, equality and financial security, but most often, it unleashes poverty, despair and desolation. What socialism ultimately achieves is that it equalizes everyone in misery.

Socialism may show early signs of success. But its accomplishments quickly fades as the deficiencies inherent in command economy rear its monstrous head. Government interventions as advocated by socialism may appear seductive; in the long run however, this appeal almost always proves to be pernicious and maleficent.

The MMM Ponzi scheme was unsustainable because it was based on faulty principles. Likewise, socialism. Its failure arises as a result of its inconsistency with fundamental codes of human conduct. The overarching defect of a system based on socialist approach is that it ignores incentives.

The Nigerian economy, since the incursion of SAP in the mid 1980s – a wholly neoliberal economic stimulus package – has practiced a mixed economy that tilts more to capitalism. And since we have tilted more to capitalism side of the pole, we cannot be romanticizing socialism that ignores market prices by way of price controls. In a world where resources are scarce, it is essential for an economic system to be based on a clear competitive structure to promote economic efficiency.

The real choice we face is between capitalism based on market prices on one hand and socialism based on price controls on the other hand. Presented with both choice, the evidence of history in Nigeria, with particular reference to the Telecom sector, overwhelmingly favors capitalism as the most efficient resource allocator.

The strength of capitalism can be attributed to a structure based upon – Prices determined by market forces; Profit-and-loss system and Private property rights. Since the focus of this piece is on Fuel Scarcity in Nigeria, yours sincerely will dwell on the first structure which is: Prices determined by market forces.

Successive administration in Nigeria has failed or lacked the balls to completely deregulate and allow market forces to determine prices of Premium Motor Spirit (PMS). Though an attempt was made in 2012, the process was hijacked and politicized.

The current fixed price regime of N145 per liter of petrol which is basically a socialist approach, is not sustainable. We may wriggle ourselves out of the current imbroglio, but in no distant time, we will be enmeshed in another biting scarcity.

It cost about N170 to import a liter of petrol. But the government insist a liter be sold for N145. So who defray the differentials? The shortfall is what we refer to here as subsidy or implicit costs  as we were told recently. This can never be sustained.

As long as pump prices are determined by government fiat, long fuel queues will continue to be a recurring feature. You cannot keep prices artificially below the market price and expect not to run into murky waters.  The hounding and shutting down of fuel stations that were selling above government fixed price by DPR was appalling to say the least. Free market would have sorted that flawlessly and with great efficiency.

The collapse of socialism was due in part to the chaos and inefficiency that result from such artificial prices. Fixed prices by the government are always either too high or too low, which then creates disequilibrium through constant shortages or surpluses. Market prices are the surest way to ensure economic efficiency.

If the prices of petrol is continually being determined by the government rather than allowing the efficiency of market forces to determine prices, we will continue to grapple with a spiraling cycle of poverty and misery.

Instead of continually reallocating resources towards greater efficiency, this socialist approach of price control will continue to lead us into a vortex of inefficiency and whirlwind of disaster.

Ogah, a Political Economist, wrote from Abuja.
elvisogah01@gmail.com